Simply put, we found the industrial production report to be terribly bearish for the US economy. Ten months ago the Federal Reserve began expanding the monetary base and as we have written this should lead to an uptick in industrial production within six months.
In April, we were relieved at the stabilization in the IP number. The “less bad” print gave hope that the economy may be bottoming. However, the decline in Industrial Production in May was rather disappointing. In fact, it suggests that the monetary policy of the Federal Reserve is still not working. While the Empire State Index showed optimism for the next 6 months, actual factory usage suggests continued weakness.
Capacity Utilization fell to 68.3 in May, a new record low. If the economy were staging a recovery we would expect capacity utilization to begin to increase. This data leaves us very concerned that the economy could suffer the dreaded “double dip” recession.